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Will Facebook help or hurt the startup economy?

When Facebook filed to go public earlier this week, you can be sure that the excitement in the halls of Facebook's offices was palpable. After all, the company's wild ride is going to make a lot of people very wealthy.

But the excitement around Facebook's IPO isn't just being felt amongst Facebook's employees. It's creating increased excitement for technology entrepreneurs, some of whom hope their startups could be the next Facebook.

There's certainly reason to believe that Facebook's public debut will help the startup community. After all, Facebook is probably going to be the largest technology IPO ever.

But it's about more than that. Consider the following:

A company that was started in a university dorm room has quite literally changed the world in less than a decade. From culture to marketing, even if you don't 'like' the world's largest social network, it's hard to deny its impact.

In eight years, Facebook has not only grown into a multi-billion dollar business, it has spurred the creation of other multi-billion dollar businesses.

It came through the Great Recession unscathed, and just a few short years after the world's financial markets collapsed, could be valued by investors at as much as $100bn.

Facebook's CEO is a 27 year-old Harvard dropout who, for all intents and purposes, never had a 'real job' before he started Facebook with his university buddies.

Facebook may not be perfect, and it could very well be significantly overvalued when its stock begins trading, but make no mistake about it: it's perhaps the strongest case study for 'Internet FTW!' and should help convince investors who still need convincing that few markets today offer the opportunities that technology does. That, logically, should promote more investment in technology, an apparent boon for startups.

But will all of that investment really go to startups? And of the portion that does, which startups will capture the greatest amount? The answers to these questions aren't really clear.

On both, it's worth considering that the Facebook IPO could actually take some money out of the startup ecosystem. While some of the funds that invested in the company will certainly take their IPO gains and put them into new companies, a publicly-traded Facebook could gobble up investment of its own. Case in point: in the run-up to the company's IPO, we saw numerous funds purchasing Facebook stock on secondary markets. Without those secondary markets, at least some of that that capital might have gone to younger startups.

With that in mind, it's worth considering that a successful public debut may push some investors to focus on mature startups with the potential to follow Facebook into the public markets in the next couple of years. That would benefit large, already well-funded startups like Box.net, Dropbox and AirBnB, but not necessarily younger startups whose futures are still far from certain.

Finally, some are pointing out that, flush with newly-liquid and highly-valuable stock, Facebook could help push the acquihire craze to new heights. In acquihires, larger companies like Facebook and Google buy small, young startups not for their products, but rather for their people. That's good for the well-connected investors who sometimes put in as little as five-figures for a stake in these companies, but it isn't necessarily good for entrepreneurs and the startup economy. After all, the entrepreneurs go to work for the acquirer and promising products which could be the next Facebooks usually die, leaving fewer and fewer 'good' startups to invest in.

Which brings us back to the original question: is Facebook good for the startup economy or not? As Facebook itself would say, "It's complicated."

Comments (1)

James Keady, Digital Marketing Manager at McLaren

The question remains whether tangible "bricks and mortar business" is fading to tech driven service economies or if the lessons learnt from .com phase 1 have not been remembered. Facebook is no doubt a different proposition in a more developed industry however it's assets being members have the ability to change its fortunes. Will be Watching future of FB with interest.

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